Ryerson prices two-part offering; Canadian forest product names up; Pogo up on M&A developments

By Paul Deckelman and Paul A. Harris

New York, Oct. 3 - Ryerson Inc. was heard by high-yield syndicate sources to have priced a $575 million two-part offering which was well subscribed on Wednesday. When the new bonds were freed for secondary dealings, they moved up solidly, rising several points above their par issue price.

Elsewhere in the primary market, Bausch & Lomb was heard to be getting ready to hit the road next week to market its $750 million three-part offering. And Delta Air Lines Inc. is preparing to sell a junk-rated tranche as part of an airline equipment bond transaction.

In the secondary market, traders saw some strength in forest product names like Bowater Inc. and its designated merger partner, Abitibi-Consolidated Inc.

Dollar General's bonds were better after the discount retailer reported favorable quarterly earnings. Pogo Producing Co.'s bonds rose as recently fickle investor sentiment turned bullish on the chances the company will merge with Plains Explorations and Production Co.

But Aventine Renewable Energy's bonds bounced around at mostly lower levels, spurred by fears of a glut in ethanol production by its foreign and domestic rivals.

A senior high yield syndicate official commented that bonds are being priced and high yield investors are buying.

Earlier in the session, a market source asserted that high yield spreads are tightening, and there is better buying in all sectors, with very little selling.

The source added that the new issue supply, thus far, is being absorbed, but noted that there is more to come.

Ryerson well subscribed

Ryerson sold a $575 million two-part issue of senior secured notes (B2/B+) on Wednesday.

The Chicago-based metals processing and distribution company priced a $425 million tranche of eight-year fixed-rate notes at par to yield 12%, on top of the price talk.

Meanwhile Ryerson priced a $150 million tranche of seven-year floating-rate notes at three-month Libor plus 737.5 basis points. The floating-rate notes priced at the wide end of the Libor plus 725 basis points price talk.

Banc of America Securities led the acquisition financing deal.

An informed source told Prospect News that the deal had been well subscribed.

Elsewhere a market source said that the word going around the market late Wednesday, shortly after the Ryerson terms circulated, held that the deal had been a blowout.

Bausch & Lomb launches

Meanwhile Bausch & Lomb launched its $750 million three-part notes offering.

The company is in the market with a $400 million tranche of eight-year senior notes and a $175 million tranche of eight-year senior toggle notes.

In addition Bausch & Lomb is offering $175 million of 10-year senior subordinated notes.

The deal is expected to price late in the week of Oct. 15.

Credit ratings remain to be determined.

Banc of America Securities LLC is the left bookrunner for the LBO financing. Credit Suisse, Citigroup and JP Morgan are joint bookrunners.

A sell-side source, not in the Bausch & Lomb deal, told Prospect News that "people are optimistic" that it will get done, and added that it may be a "Biomet-like story."

In late September Biomet Inc. priced $2.348 billion of 10-year high yield notes with no roadshow or book-building process.

In subsequent trading in the secondary market Biomet's new 10% senior cash-pay notes, its 10 3/8% toggle notes and its 11 1/8% subordinated notes - the coupons representing the caps of the respective tranches of the bridge loans - all traded lower.

On Wednesday the sell-sider said that Biomet is back in the high 90s, in a context of 97 bid, 98 offered.

"So they're trading above the underwriter's cost basis, which would be par minus the underwriting discount," the sell-sider said.

"Given the present market conditions, anytime you get out without a loss, or even with a slight gain, you have to like it."

The sell-sider said that part of the Biomet success story is that the buyout firms allowed the bonds to be priced at the bridge caps.

Also, the source said, there was the perception that the company could support the leverage.

Delta junk tranche

Elsewhere in the primary market, Delta Air Lines is marketing a junk-rated $220 million tranche of class C enhanced equipment certificates (B1/B) with an eight-year final maturity.

Credit Suisse and Merrill Lynch & Co. are joint bookrunners.

The tranche is part of an overall $1.409 billion three-part deal.

The other two tranches are investment grade, sources say.

The transaction is being conducted off the investment grade desk.

Although no other news surfaced during the Wednesday primary market session, one investment banker told Prospect News that part of the First Data Corp. senior cash-pay notes tranche could come to the market next week.

"There is an M&A market out there for LBOs right now," the source said, adding that issuers are demonstrating an ability to structure deals in order to avoid triple-C ratings.

The bad news, the source added, is that in order to do so the bond sizes are being reduced, and hence won't be as liquid.

Three markets, not two

Lately sources have been saying that there are presently two parallel high yield markets operating. One is focused on the recent cluster of issues, primarily debt refinancing deals, from well-known issuers, some with double-B ratings on one or both sides of the slash. These deals, which tend to be coming in drive-bys, are playing to traditional buy-and-hold high yield accounts. The issuers include Range Resources Corp., R.H. Donnelley Corp., Quebecor Media Inc. and American Tower Corp.

Meanwhile, so this thesis goes, the faster money, notably the hedge funds, is focused on the risk overhang remaining on the books of the big underwriters as the result of unplaced bonds and unsyndicated leveraged loans. The investment banks are shedding this risk at discounts, translating into the beefier yielding assets to which the hedge funds are partial.

On Wednesday a sell-sider suggested that a third facet will soon emerge: LBO deals that surfaced after the credit markets went south. These deals, the source added, are likely to come with more rational purchase and leverage multiples. The source looks for some of these "new LBO" transactions, emanating from the oil & gas and healthcare sectors, to surface perhaps during the Thanksgiving to Christmas timeframe, or else early in 2008.

Ryerson bonds jump in secondary

When the new Ryerson bonds were freed for secondary dealings, a trader saw the 12% notes due 2015 as having firmed smartly to 102.5 bid, 103.5 offered, well up from their par issue price. Another trader saw those bonds, as well as the deal's second tranche, the seven-year floating rate notes, at 103 bid, 104 offered.

Among other recently priced issues, a trader saw R.H. Donnelley Corp.'s new 8 7/8% notes due 2017 at 101.25 bid, 101.5 offered - around the same level to which the directory publisher's $500 million add-on issue rose to Tuesday after having priced at par.

'A blah day'

Back among the established issues, a trader said that overall, the market "looked a little firmer," even though many portfolio managers and other investment decision makers were off at the Deutsche Bank Securities leveraged debt conference in Arizona. "It seemed that people were buying stuff, and it lifted some positions. There seemed to be ongoing buying interest."

Another trader, however, dismissed the session as "sort of boring - it was basically a blah day."

A trader saw the widely followed CDX index of junk market performance up ¼ point at 991/2-993/4. The KDP High Yield Daily Index was off 0.02 at 79.88, while its yield held steady at 7.87%. Advancing issues outnumbered decliners by about a five to four ratio.

Bowater, Abitibi show strength

A trader saw strength in some of the paper names, with Bowater's bonds "up a point or two," its 9 3/8% notes due 2021 rising to 78.75 bid, its 7.95% notes due 2011 up 1½ points at 84 bid, 84.75 offered, and its 6½% notes due 2013 up a point at 78.25.

"I just think these things were overdone" he said, referring to the recent sector retreat in the face of a strong Canadian dollar, which depresses sales of Canadian-grown forest products like timber, pulp and paper, in the United States ands other non-Canadian markets (South Carolina-based Bowater has sizable forest property holdings in Canada).

"They pushed them so low that people said 'it's the cheapest sector - I've got some cash, let's put it to work'."

He also saw Abitibi-Consolidated's 8 3/8% notes due 2015 a point better at 74.5 bid, 75.

Montreal-based Abitibi and Bowater are in the process of merging the two companies into one entity, AbitibiBowater, which will be the eighth-largest publicly traded pulp and paper manufacturer in the world.

"Once again, I think the market felt it was the cheapest sector out there and they were just putting some money to work in these names."

A market source saw Bowater's 61/2s as one of the most actively traded issues on the day, pegging the bonds up nearly 2 points at 787 bid.

A trader at yet another desk called the bonds 2 point gainers at 77 bid, 78 offered, and saw Abitibi's 8 3/8s up 2 points at 75 bid, 76 offered.

Also helping the sector: UBS analyst Gail S. Glazerman said in a research note earlier this week that some paper companies are benefiting modestly from acquisitions and higher pricing for most paper products.

That having been said, though, Glazerman acknowledged that weakness in the housing sector is still hurting companies exposed significantly to forest products.

Pogo up as merger looks good

Elsewhere, a trader said that Houston-based independent oil and gas operator Pogo Producing "seemed to have a good bid to it."

He saw Pogo's 7 7/8% notes due 2013 trading up at 104.5 bid, 105 offered, a 1 point gain, while its 6 5/8% notes due 2015 rose to 103.125, and the 6 7/8% notes due 2017 at 103.125.

He cited recent "talk around these guys that...that Plains was buying their assets, and everyone was thinking that the deals was going to fall through, so they dropped back down."

He said that they were trading in the 95-96 range before the deal was announced, "then they gravitated to the change of control at 101, then went back down when there was speculation that the deal wasn't going through, and now they've gone back up."

He said "I guess they're going to do the deal and maybe they're not going to take out the debt" through a change-of-control offer, "maybe it's worth more."

Pogo and Plains have set Nov. 6 as the date of special shareholder meetings to vote on the proposed transaction.

Pogo separately announced Wednesday that it was tendering for the 7 7/8% notes and the 6 7/8% notes.

Aventine gyrates on ethanol glut fears

Also on the energy front, a trader saw ethanol producer Aventine Renewable Energy's 10% notes due 2017 fall 5 points to 82 bid, 84 offered, citing recent fears that there may be a glut of ethanol, which will drive down prices for the corn-based gasoline additive even while the costs of building ethanol conversion plants are steadily rising and demand for corn to produce ethanol is pushing that crop price up.

A trader at another desk saw the 10s as having fallen as low as 80.5, before bouncing off the bottom to finish at 85.5 bid, 86.5 offered, still down from 87.5 bid, 89 offered on Tuesday.

He saw another ethanol producer, Verasun, as having "already taken their hit," with that company's 9 3/8% notes due 2017 now rebounding a little to 83 bid, 84 offered.

Dollar General gets numbers boost

Among the retailers, a trader saw Dollar General's bonds having "popped" by 2 points in response to favorable earnings numbers, with its 10 5/8% notes rising to 96.5 bid, 97 offered.

He said that "lifted all of them a little bit, anywhere from ¼ to 1/2."

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